Reserve Requirements on Sovereign Debt in the Presence of Moral Hazard – on Debtors or Creditors

Bibliographic Data

ID9718898
AuthorsJoshua Aizenman (0000-0002-7213-6105, University of California, Santa Cruz and NBER), Stephen J Turnovsky (0000-0002-0864-2118, University of Washington)
Year2002
Volume112
Issue476
Pages107-132
Publication date2002-01-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/1468-0297.0j675
OpenAlexW3124950987
LanguageEN
Citations received1
References cited12

This paper characterises the effects of reserve requirements on financial loans in the presence of moral hazard on the lender side and sovereign risk on the borrower side. The impacts of such reserve requirements on the equilibrium default risk and borrowing are analysed and their welfare implications discussed. More generous bailouts, financed by the high‐income block, encourage borrowing and increase the probability of default. The optimal reserve requirements for both lender and borrower are characterised. The introduction of a reserve requirement in either country reduces the default risk and raises the welfare of both the high‐income and the emerging‐market economies

Business · Central bank · Collateral · Credit risk · Creditor · Debt · Economics · Financial system · Incentive · Market economy · Monetary economics · Monetary policy · Moral hazard · Probability of default · Reserve requirement · Sovereign debt · Sovereign default · Sovereignty · Welfare · Banking stability, regulation, efficiency · Finance · Global Financial Crisis and Policies · State Capitalism and Financial Governance

Tools

Open DOISci-Hub